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Deloitte’s Insights for C-suite executives and board members provide information and resources to help address the challenges of managing risk for both value creation and protection, as well as increasing compliance requirements.

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Deloitte Views & Analysis

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Record Risk Appetite in the U.K.: Global CFO Signals

In the U.K., optimism among CFOs has edged slightly lower, but remains close to its highest level in four years, while their risk appetite rose to a six-and-a-half-year high, according to a survey of 126 CFOs, including the CFOs of 27 FTSE 100 and 45 FTSE 250 companies, conducted in March by Deloitte LLP in the U.K. Economists also have become increasingly optimistic about the U.K.’s growth prospects. Among major advanced economies, the U.K. has seen the biggest upgrade to 2014 growth forecasts. This is reflected in CFOs’ perceptions of uncertainty which have continued to fall. Currently, 52% of the surveyed CFOs in the U.K. rate the level of economic and financial uncertainty facing their businesses as above normal, high or very high, down from 77% a year ago. Those are among the findings discussed in the latest edition of Global CFO Signalsfrom Deloitte Touche Tohmatsu Limited.

Optimistic Toward Growth

Their upbeat mood is also seen in CFO optimism, which remains close to its highest level in four years (although slightly down in the latest survey). In addition, risk appetite among the CFOs of the U.K.’s largest companies rose to a six-and-a-half-year high in the first quarter. Some 71% of the U.K. CFO respondents say now is a good time to take risk onto their balance sheet, more than twice the level of a year ago and higher than the levels prevailing before the onset of the financial crisis in late 2007.

Ian Stewart, chief economist for Deloitte LLP in the U.K., discusses the highlights in the video below.

Expectations for hiring, capital expenditure and discretionary spending have also hit new three- and-a-half-year highs in the first quarter, according to the survey. This fits with the 8.7% year-on-year rise in business investment in the fourth quarter of last year. A record 95% of finance chiefs expect merger-and-acquisition activity to rise over the next year.

Easy Financing

Financing conditions have continued to improve for CFOs on our survey panel. Finance chiefs report credit as being cheaper and more easily available than at any time in the last six-and-a-half years.

This has helped lead to a sharp rise in CFO expectations of bank borrowing by U.K. corporates over the last year. CFOs are also very positive on increased equity issuance. For the first time in three years, a greater proportion of respondents expect equity issuance to rise in the next 12 months than those expecting a rise in bond issuance or bank borrowing.

Focus on Expansion

The top priorities for CFOs are introducing new products/services or expanding into new markets and increasing cash flow. CFOs are placing greater emphasis on expansionary strategies, such as expanding by acquisition and increasing capital expenditure than they did a year ago. They have also softened their focus on defensive strategies such as reducing costs and leverage.

Uncertainty and fiscal consolidation remain the greatest constraints on investment, although their dampening effects have weakened. The biggest improvements have come from prospects for growth in the U.K. and the euro area. In fact, CFO respondents report that growth in the U.K. now offers greater support to their investment plans than growth in emerging markets.

Views on Inflation and Interest Rates

CFOs have become markedly more confident about the outlook for U.K. inflation. In the last quarter of 2013, a majority expected inflation to significantly overshoot its 2.0% target in two years’ time. Most now expect inflation to be around 2.0%.

On average, CFOs expect interest rates to rise by 0.25% over the next year. Consumer spending has been a significant driver of the U.K. recovery so far. The first quarter’s CFO Survey suggests that corporate spending will play an increasingly prominent role as the recovery matures.

Highlights from the Q1 2014 U.K. CFO Survey

CFO optimism about the financial prospects for their own companies dipped to 38% in the first quarter, but remains close to its highest level in four years.

Some 52% of CFOs surveyed report the level of financial and economic uncertainty facing their businesses as being above normal, high or very high, down from 77% a year ago.

A record 71% of CFOs say now is a good time to take greater risk onto balance sheets.

In another record, some 95% of CFOs expect M&A activity to rise over the next year.

A majority of CFOs expect the Bank of England’s base rate to be above its current level of 0.5% in a year’s time.

CFOs are especially positive on growth in the U.K. and U.S, but prospects for growth in emerging economies have deteriorated.

About the Q1 2014 U.K. CFO Survey

The Q1 2014 U.K. CFO Survey is led by Ian Stewart, chief economist for Deloitte LLP in the U.K. and was conducted between March 6, 2014 and March 24, 2014, with participation from 126 CFOs participated, including the CFOs of 27 FTSE 100 and 45 FTSE 250 companies. The rest were CFOs of other U.K.-listed companies, large private companies and U.K. subsidiaries of major companies listed overseas. The combined market value of the 81 U.K.-listed companies surveyed is £560 billion, or approximately 26% of the U.K.-quoted equity market.